Wednesday, January 28, 2015

FAQ: Risk of a Second Mortgage

A loan that in the event of foreclosure is paid off after the first mortgage.


You can have one or more mortgages on your property. Buyers often use second mortgages when they can not get enough financing from a lender to pay for a home. For example, you can ask the seller to reduce a home's selling price by $15,000 and offer to pay back this amount along with interest in monthly installments.

This $15,000 is secured with a second mortgage. The seller, though, is taking a risk - if you default on the first mortgage and the lender forecloses on the home, there might not be enough money from the sale to cover both the first mortgage and the seller's loan. Second mortgages usually have a higher interest to offset this risk. In some states, a second mortgage is called a junior trust deed.

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